Question 1

What role does Generally Accepted Accounting Principles (GAAP)play in the accounting process?

Accepted Answer

All firms quoted on a U.S.exchange are r

Question 2

Use the table for the question(s)below.
Income Statement for CharmCorp:  
-Consider the above Income Statement for CharmCorp.All values are in millions of dollars.If CharmCorp has 6 million shares outstanding,and its managers and employees have stock options for 1 million shares,what is its diluted EPS in 2009?

Accepted Answer

A) $1.42 
B) $1.67 
C) $2.00 
D) $2.33 
A) $1.42 
B) $1.67 
C) $2.00 
D) $2.33

Question 3

Use the table for the question(s)below.  
-If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in the balance sheet between 2007 and 2008?

Accepted Answer

A) The company is having difficulties selling its product. 
B) The company has reduced its debt. 
C) The company has added a major new asset in terms of plant and equipment. 
D) The company has experienced a significant rise in its market value. 
A) The company is having difficulties selling its product. 
B) The company has reduced its debt. 
C) The company has added a major new asset in terms of plant and equipment. 
D) The company has experienced a significant rise in its market value.

Question 4

Use the table for the question(s)below.
Income Statement for Xenon Manufacturing:  
-Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.If Xenon Manufacturing has 25 million shares outstanding,what is its EPS in 2009?

Accepted Answer

A) $0.36 
B) $0.40 
C) $0.63 
D) $0.84 
A) $0.36 
B) $0.40 
C) $0.63 
D) $0.84

Question 5

Above are portions of the balance sheet and income statement for two companies in 2008.Based upon this information,which of the following statements is most likely to be true?

Accepted Answer

A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets they employ than firm B. 
C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
D) Fixed asset turnover ratios indicate that firm A generating more sales for the assets they employ than firm B. 
A) Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
B) Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets they employ than firm B. 
C) Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
D) Fixed asset turnover ratios indicate that firm A generating more sales for the assets they employ than firm B.

Question 6

Why must care be taken when comparing a firm's share price to its operating income?

Accepted Answer

A) Both share price and operating income are related to the whole firm. 
B) Share price is a quantity related to the entire firm,while operating income is an amount that is related solely to equity holders. 
C) Both share price and operating income are related solely to equity holders. 
D) Share price is a quantity related to equity holders,while operating income is an amount that is related to the whole firm. 
A) Both share price and operating income are related to the whole firm. 
B) Share price is a quantity related to the entire firm,while operating income is an amount that is related solely to equity holders. 
C) Both share price and operating income are related solely to equity holders. 
D) Share price is a quantity related to equity holders,while operating income is an amount that is related to the whole firm.

Question 7

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms,while giving a promise to buy back those assets at a later date.The incoming cash was recorded as revenue,but the promise to buy back the assets was not disclosed.Which of the following is one of the ways that such a transaction is deceptive?

Accepted Answer

A) The assets should have been listed on the balance sheet as long term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement. 
A) The assets should have been listed on the balance sheet as long term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement.

Question 8

Use the table for the question(s)below.  
-If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in quick ratio between 2007 and 2008?

Accepted Answer

A) The company has eliminated the risk that it will experience a cash shortfall in the near future. 
B) The company has reduced the risk that it will experience a cash shortfall in the near future. 
C) The risk that the company will experience a cash shortfall in the near future is unchanged. 
D) The company has increased the risk that it will experience a cash shortfall in the near future. 
A) The company has eliminated the risk that it will experience a cash shortfall in the near future. 
B) The company has reduced the risk that it will experience a cash shortfall in the near future. 
C) The risk that the company will experience a cash shortfall in the near future is unchanged. 
D) The company has increased the risk that it will experience a cash shortfall in the near future.

Question 9

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2008  
-Consider the above statement of cash flows.Which of the following is true of AOS Industries' operating cash flows?

Accepted Answer

A) It collected more cash from its customers than they charged. 
B) It sold more inventory than it bought. 
C) It charged more on its accounts payable back than it paid back. 
D) All of the above are true. 
A) It collected more cash from its customers than they charged. 
B) It sold more inventory than it bought. 
C) It charged more on its accounts payable back than it paid back. 
D) All of the above are true.

Question 10

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

Accepted Answer

A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B) a low-end retailer that has a low mark-up on all items it sells 
C) a brokerage firm that has high levels of leverage 
D) a grocery store chain that has very high turnover,selling many multiples of their assets per year 
A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B) a low-end retailer that has a low mark-up on all items it sells 
C) a brokerage firm that has high levels of leverage 
D) a grocery store chain that has very high turnover,selling many multiples of their assets per year

Question 11

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

Accepted Answer

Examples of some fir

Question 12

Price-earnings ratios tend to be high for fast-growing firms.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?

Accepted Answer

A) It includes entries for the depreciation of assets. 
B) It does not include entries for expenditures on inventory. 
C) It does not include entries for collection of money from account receivables. 
D) It includes cash inflows from services rendered. 
A) It includes entries for the depreciation of assets. 
B) It does not include entries for expenditures on inventory. 
C) It does not include entries for collection of money from account receivables. 
D) It includes cash inflows from services rendered.

Question 14

Use the table for the question(s)below.
AOS Industries Statement of Cash Flows for 2008  
-Consider the above statement of cash flows.In 2008,AOS Industries had contemplated buying a new warehouse for $2 million,the cost of which would be depreciated over 10 years.If AOS Industries has a tax rate of 25%,what would be the impact for the amount of cash held by AOS at the end of the 2008?

Accepted Answer

A) It would have $2,000,000 less cash at the end of 2008. 
B) It would have $1,950,000 less cash at the end of 2008. 
C) it would have $150,000 less cash at the end of 2008. 
D) it would have an additional $50,000 in cash at the end of 2008. 
A) It would have $2,000,000 less cash at the end of 2008. 
B) It would have $1,950,000 less cash at the end of 2008. 
C) it would have $150,000 less cash at the end of 2008. 
D) it would have an additional $50,000 in cash at the end of 2008.

Question 15

The firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.

Accepted Answer

A) True 
 B)False

Question 16

How does a firm select the date for preparation of its balance sheet?

Accepted Answer

The balance sheet is prepared

Question 17

The income statement reports the firm's revenues and expenses,and it computes the firm's bottom line of net income,or earnings.

Accepted Answer

A) True 
 B)False

Question 18

A small company has current assets of $112,000 and current liabilities of $117,000.Which of the following statements about that company are most likely to be true?

Accepted Answer

A) Since net working capital is negative,the company will not have enough funds to meet its obligations. 
B) Since net working capital is high,the company will likely have little difficulty meeting its obligations. 
C) Since net working capital is very high,the company will have ample money to invest after it meets its obligations. 
D) Since net working capital is nearly zero,the company is well run and will have little difficulty attracting investors. 
A) Since net working capital is negative,the company will not have enough funds to meet its obligations. 
B) Since net working capital is high,the company will likely have little difficulty meeting its obligations. 
C) Since net working capital is very high,the company will have ample money to invest after it meets its obligations. 
D) Since net working capital is nearly zero,the company is well run and will have little difficulty attracting investors.

Question 19

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

Accepted Answer

A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B) a high-end fashion retailer that has a very high mark-up on all items it sells 
C) a brokerage firm that has high levels of leverage 
D) a grocery store chain that has very high turnover,selling many multiples of their assets per year 
A) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
B) a high-end fashion retailer that has a very high mark-up on all items it sells 
C) a brokerage firm that has high levels of leverage 
D) a grocery store chain that has very high turnover,selling many multiples of their assets per year

Question 20

Which of the following is NOT considered to be an operating expense on the income statement?

Accepted Answer

A) administrative expenses and overhead 
B) corporate taxes 
C) salaries 
D) depreciation and amortization 
A) administrative expenses and overhead 
B) corporate taxes 
C) salaries 
D) depreciation and amortization

Exam 2: Introduction to Financial Statement Analysis

What role does Generally Accepted Accounting Principles (GAAP)play in the accounting process?

Use the table for the question(s)below. -If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in the balance sheet between 2007 and 2008?

Use the table for the question(s)below. Income Statement for Xenon Manufacturing: -Consider the above Income Statement for Xenon Manufacturing.All values are in millions of dollars.If Xenon Manufacturing has 25 million shares outstanding,what is its EPS in 2009?

Above are portions of the balance sheet and income statement for two companies in 2008.Based upon this information,which of the following statements is most likely to be true?

Why must care be taken when comparing a firm's share price to its operating income?

Use the table for the question(s)below. -If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in quick ratio between 2007 and 2008?

Use the table for the question(s)below. AOS Industries Statement of Cash Flows for 2008 -Consider the above statement of cash flows.Which of the following is true of AOS Industries' operating cash flows?

Which of the following firms would be expected to have a high ROE based on that firm's high profitability?

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

Price-earnings ratios tend to be high for fast-growing firms.

Which of the following is NOT a reason that the income statement does not accurately indicate how much cash a firm has earned?

The firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.

How does a firm select the date for preparation of its balance sheet?

The income statement reports the firm's revenues and expenses,and it computes the firm's bottom line of net income,or earnings.

A small company has current assets of $112,000 and current liabilities of $117,000.Which of the following statements about that company are most likely to be true?

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

Which of the following is NOT considered to be an operating expense on the income statement?

Corporate Finance and the Financial Manager

Time Value of Money: An Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: A Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters